Okun's Law: Fit at 50?

By Laurence M. Ball, Daniel Leigh, Prakash Loungani

January 14, 2013

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Laurence M. Ball, Daniel Leigh, and Prakash Loungani. Okun's Law: Fit at 50?, (USA: International Monetary Fund, 2013) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper asks how well Okun’s Law fits short-run unemployment movements in the United States since 1948 and in twenty advanced economies since 1980. We find that Okun’s Law isa strong and stable relationship in most countries, one that did not change substantiallyduring the Great Recession. Accounts of breakdowns in the Law, such as the emergence of“jobless recoveries,” are flawed. We also find that the coefficient in the relationship—the effect of a one percent change in output on the unemployment rate—varies substantially across countries. This variation is partly explained by idiosyncratic features of national labormarkets, but it is not related to differences in employment protection legislation.

Subject: Employment, Employment protection, Labor, Output gap, Production, Unemployment, Unemployment rate

Keywords: Absolute value, Coefficient estimate, Economic fluctuations, Employment, Employment protection, Estimates of Okun's Law, Law captures factor, Law coefficient, Okun’s law, Output gap, Unemployment, Unemployment rate, Unemployment rate, Unemployment-employment relation, Unemployment-output relationship, Unemploymnent, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/010
Stock No:

WPIEA2013010
ISBN:

9781475574265
ISSN:

1018-5941

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